Luxury Brand's Supply Chains are Customized and Global

More and more global luxury brands such as Gucci, Louis Vuitton, and others are promoting themselves as Lifestyle brands, spanning many products including fragrance, home collections, apparel, paint, wallpaper, foods, and many other products. In this environment, the supply chain and logistics task becomes even more complex, as it involves delivering and fulfilling product and service support to deliver a lifestyle “vision” around the world. Many of the Lifestyle brands are licensed across multiple geographies. In this environment, supply chains are not “pull”, but rather “push” in nature. Designers decide on a life style concept, and plan on what they are going to sell – which is a PUSH-based supply chain. Such brands may ship small runs of five bags, gowns, or shoes that cost thousands of dollars, whereas typical apparel products are produced in volumes of hundreds of thousands going to low cost retailers. In this environment, global luxury brands have to design their supply chain based on who they are today, and who they are trying to be based on the projection of their image to the public.

A pull-based supply chain is different – the system recognizes the demand trigger and reacts to it. But for luxury brands, designers are making decisions TODAY about what people might be wearing in 15 months. Luxury brands are also not like “fast fashion companies” like Gap, Zara, H&M, and others – they buy fabric, throw it out, find out what sells, and make more of it! Global luxury brands may produce a single product one time, and never produce it again….ever. These products are sold as a “look” – that is to say, they include several different products that will arrive at a merchandise location at the same time that fit together for an overall lifestyle design feel and aesthetic. Delivery reliability is much more important than speed in this environment.

The nature of pricing and timing is critical for this industry. Designers are by their very nature fickle creatures who change their mind frequently, choosing new fabrics, new designs, new colors, and often challenging materials – and that is what makes our supply chain difficult. Affluent consumers are willing to pay for higher-margin merchandise, but only for a very short time. They will pay a price that yields 70% gross margins, which converts to negative margins in 12 weeks. A fashion item loses value very quickly, and if not sold during a very short season won’t be worth anything a week later. The supply chain design is very much focused on contract manufacturing to a network of factories. This is a challenging sourcing base, and global luxury brands must also pay attention to general labor and supply chain compliance policies. Designers will specify fabrics to contract apparel cut and sew operations – which require alignment of networks.

Most of the luxury brands’ global supply chain manufacturing networks are in Asia, with the biggest location being China – which is becoming too expensive. There has been a strong push for more US manufacturing in recent years. The problem, of course, is that companies struggles to find individuals who are willing to work in apparel manufacturing plants. Another interesting observation is that many luxury brands ship to retailers at the end of the month, because big retailers such as Saks, Macy’s, Penny’s, and others are measured on “open to buy dollars” and “investment productivity”. These retailers will snapshot their inventory productivity at the end of every month for the financial analysts…which means the brands must ship to these retailers at the end of our month….which are then received into inventory the very next day at the beginning of the next month, to ensure the measures look good.! The entire apparel supply chain is driven by these financial metrics. A lot of the supply chain behaviors are driven by these financial measures, compensation systems, and bonuses are based on that metric.

Professor at Columbia University. Recipient of the Nobel Memorial Prize in Economic Sciences in 2001 & the John Bates Clark Medal in 1979. Author of "Freefall: America, Free Markets", "The Sinking of the World Economy", "Globalisation and its Discontents" & "Making Globalisation Work".

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